Difference between revisions of "Future value"
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*[[CF|CF<small>t</small>]]. [[Cash flow]], which can be either positive or negative. The cash flow for a particular period is often given as a subscript, CF<small>t</small>, where t is the period. Thus, CF<small>0</small> = [[PV]] = the cash flow at Time 0, whereas CF<small>3</small> is the cash flow at the end of Period 3. | *[[CF|CF<small>t</small>]]. [[Cash flow]], which can be either positive or negative. The cash flow for a particular period is often given as a subscript, CF<small>t</small>, where t is the period. Thus, CF<small>0</small> = [[PV]] = the cash flow at Time 0, whereas CF<small>3</small> is the cash flow at the end of Period 3. | ||
*[[I/YR]]. [[Interest rate per year]] or [[interest rate earned per year]]. This interest is based on the balance at the beginning of each year, and, if the principal amount is unchanged, the interest is commonly calculated at the end of the year. The interest can be expressed as a percentage, like ''5%'', or as a decimal, like 0.05. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. All along with ''I'', some use a small letter, ''i'', as well as ''r'' for ''rate of return''. | *[[I/YR]]. [[Interest rate per year]] or [[interest rate earned per year]]. This interest is based on the balance at the beginning of each year, and, if the principal amount is unchanged, the interest is commonly calculated at the end of the year. The interest can be expressed as a percentage, like ''5%'', or as a decimal, like 0.05. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. All along with ''I'', some use a small letter, ''i'', as well as ''r'' for ''rate of return''. | ||
| − | *''INT''. Dollars of interest earned during the year = Beginning amount * [[I/YR]]. For instance, if the initially invested amount is US$100 and the [[I/YR]] is 10%, | + | *''INT''. Dollars of interest earned during the year = Beginning amount * [[I/YR]]. For instance, if the initially invested amount is US$100 and the [[I/YR]] is 10%, ''INT'' will be 10. |
*''N''. Number of periods involved in the analysis. Sometimes the number of periods is designated with a lowercase ''n'', so both N and n indicate the number of periods involved. | *''N''. Number of periods involved in the analysis. Sometimes the number of periods is designated with a lowercase ''n'', so both N and n indicate the number of periods involved. | ||
Revision as of 11:45, 3 December 2019
Future value (also known by its acronym, FV, as well as FVN) is the future value of an initial single cash flow, where N is the number of periods the initial cash flow is compounded.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Future value (FV, FVN). The future value of an initial single cash flow, where N is the number of periods the initial cash flow is compounded.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Future value. The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.
Related concepts
- PV. Present value, or beginning amount. For example, US$100 initially invested in a bond.
- FVN. Future value, or ending amount, of the account after N periods. Whereas PV is the value now, or the present value, FVN is the value N periods into the future, after the interest earned has been added to the account.
- CFt. Cash flow, which can be either positive or negative. The cash flow for a particular period is often given as a subscript, CFt, where t is the period. Thus, CF0 = PV = the cash flow at Time 0, whereas CF3 is the cash flow at the end of Period 3.
- I/YR. Interest rate per year or interest rate earned per year. This interest is based on the balance at the beginning of each year, and, if the principal amount is unchanged, the interest is commonly calculated at the end of the year. The interest can be expressed as a percentage, like 5%, or as a decimal, like 0.05. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. All along with I, some use a small letter, i, as well as r for rate of return.
- INT. Dollars of interest earned during the year = Beginning amount * I/YR. For instance, if the initially invested amount is US$100 and the I/YR is 10%, INT will be 10.
- N. Number of periods involved in the analysis. Sometimes the number of periods is designated with a lowercase n, so both N and n indicate the number of periods involved.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
